Release Date: February 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elgi Equipments Ltd (BOM:522074, Financial) reported a 6.5% increase in sales compared to Q3 of the previous year.
- The company maintained strong profitability, with an EBITDA of INR 1294 million despite increased employee costs.
- The Middle East and Indian markets performed well, with the Middle East exceeding plans and India showing good growth.
- The company has a strong net cash position, which continues to improve.
- Elgi Equipments Ltd (BOM:522074) expects Q4 to have a better top line than Q3, with profitability following a similar pattern.
Negative Points
- The top line performance in North America was disappointing due to ERP implementation challenges.
- Sales in Australia and Southeast Asia were lower than the previous year, with Southeast Asia continuing to be a challenging market.
- Employee costs increased significantly in North America due to filling vacant leadership positions.
- Inventory and receivables are on the higher side, partly due to logistics challenges and the Red Sea problem.
- The company faced a 6% to 7% degrowth in North America, impacting overall profitability.
Q & A Highlights
Q: How do you see the India market over the next one to two years, assuming continuity in the government? Will we grow double-digit or high single-digit?
A: There is a lot of optimism about India, both internally and externally. Even if a small percentage of this optimism converts into reality, it will significantly benefit our country. We are working on strategic initiatives to leverage our go-to-market strategy in India. We are confident that India will have double-digit growth for us for at least the next couple of years. β Jairam Varadaraj, Non-Executive Independent Director
Q: Could you bifurcate the 6% growth in the first nine months of FY '24 for the compressors business between volume and price?
A: The majority of this growth is from volume as we have already realized the benefit of better pricing last year. Since then, we have not increased our prices. This applies to both India and the rest of the world. β Jairam Varadaraj, Non-Executive Independent Director
Q: Has there been any change in the market share structure in India in the past two and a half years?
A: The biggest change in the competitive landscape is the influx of low-cost machines from China, which now account for about 25% of the market, up from 8-10% two and a half years ago. We are building a competitive response to this. β Jairam Varadaraj, Non-Executive Independent Director
Q: Could you give some sense on how the profitability has been in different regions?
A: The only region where we made a lower profit compared to the previous year is North America, primarily due to top-line challenges. Other regions like Australia, India, Middle East, and Europe have shown better profitability. β Jairam Varadaraj, Non-Executive Independent Director
Q: Do you see any potential changes in PBT that might be anticipated?
A: Profit before tax has gone up in the quarter, and I expect this trend to continue into the fourth quarter, probably at a slightly higher level due to an expected better top line. β Jairam Varadaraj, Non-Executive Independent Director
Q: Do you see similar employee cost increases in other geographies in upcoming quarters?
A: No, the significant increase in people costs in North America was due to filling vacant leadership positions. This is not a concern for other geographies. β Jairam Varadaraj, Non-Executive Independent Director
Q: Could you give details on the Siemens order execution schedule and margins?
A: The Siemens order is over a 30-33 year period. The annual impact is not very significant. Profitability on the service side will be healthier than the company average, while the equipment side will be marginally lower. β Jairam Varadaraj, Non-Executive Independent Director
Q: How do you see barriers to entry in different compressor subsegments?
A: Barriers to entry are high in segments where service and support are crucial. Newcomers with just a compressor will find it difficult to enter these segments. β Jairam Varadaraj, Non-Executive Independent Director
Q: What is the outlook for demand from the water well and construction segments?
A: We have regained our position in the water well segment and expect continued growth. Construction and mining are also doing well, with marginal growth expected next year. β Jairam Varadaraj, Non-Executive Independent Director
Q: How long will it take to launch a competitive product in response to Chinese products?
A: We should be able to launch a competitive product within a year once we start the project. We are currently defining the product, price points, and performance metrics. β Jairam Varadaraj, Non-Executive Independent Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
